Investing can be quite scary when you look at it from afar but when you peek a little closer, it all starts to make sense and once it makes sense, it’s exciting not scary. Let’s take a quick look at three key principles of investing for your future wealth:
Risk Management
There is no such thing as a risk free investment. In the same way that there’s no such thing as a risk free day. Even staying in bed carries some risk; in fact in 2015 5 Australians died when falling off a bed and 4 more died falling out of a chair.
However, it is also true that some investments are riskier than others. Buying a piece of music memorabilia, for example, might seem like a good idea but music trends come and go. Elvis records were once highly valuable – now they can barely give them away.
So, the trick is to work out what you can invest in that will always be in demand. Technology can be replaced, so tech stocks may be riskier than they seem this week. Music tastes change. But there will always be a need for people to have somewhere to live.
Property investment is a low-risk investment activity because there will always be less supply than there is demand for it and nobody is making new land for us to build on. There’s a finite amount of property that can be supplied to the market.
Reward Indications
Before you invest in anything; you should have some idea of what you expect to receive as a reward for your investment. If you lent money, for example, you would charge interest on that money and the interest would be your profit.
One of the reasons, I like property so much is that it has two means of making your money work for you. The first is tenant rents. These rents are used to pay down the mortgage over time. So, you buy a home for $500,000 of which $100,000 is your money (or preferably, equity from your home) and $400,000 is the bank’s money.
But of course, your property also tends to gain equity value. A reasonable gain would be 5% year-on-year which means that by the time the mortgage is paid off in 20 years’ time. The property is worth much more than $500,000. In fact, at 5% year-on-year it would be worth $1,326,649 after 20 years. That’s an additional $836,649 in equity increases.
Reactions To Inflation
Inflation is a wealth killer. If your investments don’t outpace inflation – they are worth, in real terms, less every year. In Australia, in 2017, the inflation rate is 2%. That means you need to find an investment class which performs better than that. With a reasonable expectation of 5% year-on-year (and in the past returns have sometimes been much higher than that), property investment also offers security against inflation.
Want to know more about investing without unacceptable risk, with decent rewards and rewards which beat inflation? Why not grab a copy of my e-book or contact me to see how you can make your future a wealthy one, today?
